Introduction
The term principles of economics as will be used in this study refer to unique techniques and notions that are often utilized by economists in adjusting economic activities. The term is often associated with an economy that designates proficient uses of resources by societies with a rationale to achieve their set goals. A shared understanding of the concept in any society is that irrespective of the geographical position where the concepts are applied, the use of the principles of economics applies in a similar way whatsoever. However, other researchers such as Crawley, (2015) assert that economic principles refer to the various methods and ideas that are utilized by economists when analyzing and studying about the economy.
Macroeconomic is regarded as a branch of economics that studies the various branches of economics and how they relate to one another, as far as wealth generation is concerned. There are various indicators of macroeconomic issues, and they include the unemployment, inflation, economic growth indicators, interest rates and finally the balance of payment between countries. The purpose of this paper is to highlight the various economic principles and macroeconomic indices that are used in the understanding of different economic perspectives.
Economic principles
Trade off
The trade off is the first economic principles, and it helps in the decision-making process. According to the notion, it is believed that for an individual to make a decision on something, he/she has to choose one thing over another. Mankiw gives a simple example to explain the trade-off concept using "gun and butter" and states that a country that wishes to reinforce its security (defense) by investing more on "guns" will have to forego investment in the production process (butter) (Ochs, 2012).
Another example used to express the concept of trade-off is the clean environment and income level concept, and this strategy means that for a firm to experience a healthy environment, it has to reduce pollution level, which is beneficial to the surrounding communities due to the various health impacts associated with it. However, at the expense of high fabrication costs experienced by a firm, profitability level of the trade will decrease and consumers will have to pay more.
The principle of efficiency and equality is the third example of the concept of trade-off and indicates that for an economy to achieve one aspect, it has to forego the other. A society that experiences efficiency in its use of resources means that the enterprise produces maximum benefits from the given resources, and the users are satisfied to the maximum. However, with equality, the experience is different as it requires that available resources to be equally distributed in the society even if efficiency will not be achieved (Gilleskie & Salemi, 2012).
Cost
Cost is another economic principle, and it states that in making decisions as required in trade off, people have to put cost into consideration. Opportunity costs as an economic principle refer to the single item that one gives up to get the other. For a business organization to achieve its set goals, it has to lose some other objectives, and in this study, the lost objectives will be referred to as the foregone opportunities (Crawley, 2015).
Incentives
Initiatives, as an economic principle, refer to something that can induce a person to act towards achieving a set objective. Rational persons have to put various costs and benefits into consideration while making decisions, a feature that is often dictated by incentives. This concept has made policy makers to include different types of incentives while making their respective laws. Living standards of the people in a given society is another set of economic principles, as it determines the well-off status of the people. Globally, different countries experience varying levels of living standards, an aspect that is dependent on their economic growth status. Moreover, the living standard of a country indicates the productivity ability of that country, and policy makers should consider including various factors that influence both living standards and productivity ability while making policy issues in a given country.
Macroeconomic indices
The swell in the percentage of the national output realized in a given year by a particular country indicates the rate of economic growth, and is often represented as gross domestic product (GDP). In its calculation, various aspects are put into consideration, which includes the entire value of goods and services realized in a given year. The value obtained for a given year is then compared with those of other years to determine progress, and the comparison can also be made with other states to determine the economy that is growing at a faster rate. High rates of economic growth imply positive economic growth and in the case of downfall in the economic growth, the situation is referred to as a recession or depression, meaning a negative economic growth.
An example in place to indicate the above situation is Chile's GDP, which grew by 4.8% in 2010 and 5.7% in 2011 and this case suggests that the country's economy received a positive impact and was therefore expanding. The expansion can thus be calculated as the difference between the two figures, which is about 0.9%. On the other hand, Zambia experienced an economic growth of 4.6% in 2010 and 4.4% in the preceding year. Although the two figures indicate positive growths in the economy, an important aspect to note is that the expansion decreased by 0.2% in the following year (Settlage et al., 2015).
Inflation is another indicator of macroeconomic and indicates a progressive increase in the general prices of commodities in a given market, which cannot be adequately controlled. Every government has the mandate to monitor the price levels of goods and services in its respective country, a feature that minimizes inflation to a great extent. A high rate of inflation indicates a fast growth of price, and it has diverse impacts on the economy, both negative and positive. Some of the adverse effects include depreciation in money value and high-interest rates among other issues that often discourage people from investing (Mügge, 2015).
Unemployment is another significant macroeconomic, aspect and one is regarded to be unemployed if he/she is ready to do a certain job but remains unemployed due to the lack of employment opportunity. High levels of unemployment rates impact negatively on economic growth as individuals do not contribute in any way to enhancing the productivity of a nation, and they act as a liability. Studying the forces that drive a particular economy and employing effective strategies to minimize the unemployment rate have a positive on the economic development of a country, and can result in more consumption and productivity (Madsen, 2013).
The balance of payments indicates the position of a country as far as trading with other nations is concerned. Every country tries to prevent a massive deficit in the current account as it implies that high-value merchandises are imported into a country than those exported. For a given state to achieve a balance for the well-being of their respective economies, it is worth appreciating that the exports should surpass the imports. The position of balance of payment of a particular state has varied implications. For example, if the current account for Chile is $32.2 billion, it implies well for the country as the balance of payment is positive (Laibson & List, 2015). This figure, therefore, means that the country has more export value for its merchandise than that of imports hence contributing to economic development.
The government budget is the final aspect on macroeconomic indices to be discussed in the above study. This concept is an essential source of information on the economic performance of a given country. The concept is further divided into three which include surplus, deficit, and balanced budgets. For the case of a balanced budget, it indicates that government spending experienced is in line with the amount of tax that is generated in a given year. However, for the surplus budget, it means that the government is spending less than the generated tax, while in the case of deficit budget; government expenditure is more than received tax. However, a government might at times be forced to input more cash into the economy than the figure obtained through tax through borrowing, a concept that is often referred to as the public sector net borrowing requirement (PSNB) (Lacob et al., 2015).
Conclusion
Through the various types of economic principles, nations can understand varying ways through which they can help the poor in society and effectively analyze their respective economies so as to make a rational judgment. Economic principles play a vital role in policy making decisions, an aspect that impacts well on economic development, as it helps enhance equality and efficiency state of an economy. There are numerous economic principles, and all play an essential role in understanding the economic and financial world around people. Individuals who understand the principles and efficiently utilize them develop to be better savers, investors, producers in the society and consumers among other responsibilities, as citizens of a given state.
In addressing various aspects of the economy, the described principles are used to help solve the situation irrespective of where they are applied. As evidenced from the first principle in the paper, resources in any economy are scarce and cannot meet the needs of the people. For this reason, people have to make a decision based on competing alternatives on how to use the available resources efficiently. This initiative, therefore, means that people have to opt for saving or spending the available resources and in case they save, they ought to engage the associated opportunities with the practice.
The principles further appreciate that in every economic activity that people engage in, they have to make varying decisions and choose between alternatives that should be rational. On the other hand, macroeconomic indicators play a critical role in understanding trends in economic growth through evaluating various economic sectors within a country and comparison with other states. The various aspects of macroeconomic indices also help economists to compare the economic growth of different countries.
References
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